The Food Stamp Economy

The New York Post headline read: "Could You Spend $500 on Food at This Bodega? A Welfare Recipient Claimed To!" A few days later, another headline: "Welfare Recipients Take Out Cash at Strip Clubs, Liquor Stores and X-Rated Shops." "They're on the dole -- and watching the pole," wrote the Post. "Welfare recipients took out cash at bars, liquor stores, X-rated video shops, hookah parlors and even strip clubs -- where they presumably spent their taxpayer money on lap dances rather than diapers."

Here's how it works.

Welfare recipients receive Electronic Benefit Transfer cards, preloaded with specified dollar amounts for food and for cash assistance. The EBT card can be used to purchase eligible food products at stores pre-approved by the U.S. Department of Agriculture. Swipe the card, enter a PIN, and the amount of the food purchase is deducted from the welfare recipient's food allowance and is credited to the retailer. Some "welfare-ready" ATMs accept the EBT cards just like ATM or debit cards, dispensing cash.

But the Post exposed welfare recipients using the ATMs located inside businesses with names like Hank's Saloon in Brooklyn; an East Village porn shop called Blue Door Video; The Anchor, a SoHo lounge; TriBeCa's Patriot Saloon; a Bronx liquor distributor called Drinks Galore; and Club Eleven and Club Heat, both Bronx strip clubs.

In case welfare recipients want to know where they can find "welfare-ready" ATMs, the New York state's Office of Temporary and Disability Assistance lists some of these EBT-ready ATMs on its website.

The Post also disclosed a federal sting that found food stamp "purchases" of several hundred dollars per transaction made at low-end bodegas (aka mini-marts, corner stores, mom-and-pop stores), usually involving little or no foodstuffs actually changing hands.

Whenever there is a government program, there will be more waste, fraud and abuse than you find in the private sector. What a shock.

The real scandal is our tepid 2 percent growth in this fourth year of recovery. At 2 percent, the economy produces too few jobs to make a dent in the nearly 8 percent unemployment rate. Spending just on food stamps (now called SNAP, the Supplemental Nutrition Assistance Program) has gone from $37 billion in President George W. Bush's last year to over $78 billion for 2012, an increase of 210 percent.

Compare this recovery to any recovery since World War II. Based on past performances, the economy should be generating twice the number of jobs and the gross domestic product should be growing much, much faster.

Not only is unemployment still a high 8 percent, but the labor force participation rate is near a 30-year low. This means many able-bodied and able-minded work-age adults simply dropped out of the job market.

Look at the record number of Americans applying for and receiving disability benefits. The Congressional Budget Office blames this on the economy: "When jobs are plentiful, some people who could qualify for the DI program may choose instead to work. ... CBO projects that as a result of the most recent recession and slow recovery, the number of disabled worker beneficiaries will continue to rise over the next few years (although growth will slow as the economy improves)."

The EBT scandal also raises another issue: Is government welfare -- as opposed non-government charity -- the best way to help the needy and to encourage self-sufficiency?

When President Lyndon Johnson implemented the so-called "war on poverty," poverty in America in 1965 stood at about 15 percent -- nearly identical to today's rate. It had been trending downward for decades. From an estimated 70 percent at the turn of the century, the poverty rate was 22.5 percent in 1959, 19 percent when Johnson announced his "war" in January 1964 and 17.3 percent by the time Congress enacted the Economic Opportunity Act in August 1964. It pretty much flat-lined from 1965 onward -- hitting a one-time low of 11.1 in the early '70s, but bouncing back to 15 percent or slightly higher several times.

Welfare spending -- after adjusting for inflation -- nearly tripled from 1965 to 1975. But the poverty rate barely budged. The number of long-term welfare recipients increased.

How do we know that government welfare took away incentive from able workers?

President Clinton signed the 1996 welfare reform act. It allowed "family caps" so that a welfare recipient received no additional money for having another child while on welfare. It also placed time limits on recipients. Marian Wright Edelman, president of the Children's Defense Fund, called the bill "the biggest betrayal of children and the poor since the CDF began."

But welfare rolls decreased by almost half -- a much steeper decline than even the most enthusiastic supporters of reform ever expected. "The latest government statistics reveal that welfare caseloads have dropped an astonishing 46 percent since 1993," wrote Cato economist Stephen Moore in 2000. "The explanation for this progress is that welfare reforms in Washington and in the states have had a profound impact in reversing the perverse incentives of the Great Society welfare state."

The question is not whether we help, but how to do so without incapacitating the needy.

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